Softwood Lumber Dispute

Origins of the Dispute (1982–86): Lumber I and Lumber II

In 1983, the US Department of Commerce rejected the 1982 complaint. The US Softwood Lumber Lobby had asked for the US to apply countervailing duties against Canadian producers. (This first salvo in the dispute is often called “Lumber I.”) But by 1985, the Canadian industry had captured more than one-third of the US market. In June 1985, US producers set up the Coalition for Fair Lumber Imports and lobbied Washington again. They also sought redress through the International Trade Commission (ITC).

Negotiations between Canada and the US began in January 1986 (“Lumber II”). There was added pressure from US president Ronald Reagan, who promised to take action on the US producers' behalf if bilateral negotiations failed. On 19 May 1986, the Coalition filed a countervailing duty petition seeking an import duty of 27 per cent. On June 26, the ITC determined that Canadian policies had injured US producers.

Meanwhile, BC premier Bill Vander Zalm stunned Canadian producers by declaring that stumpage rates were too low, in effect validating the US complaint. In September, Trade minister Pat Carney offered concessions, amounting to a 10 per cent increase in stumpage rates. Then, the US Department of Commerce handed down a decision imposing a 15 per cent duty. Canada sought to avoid US duties through a “suspension agreement,” under which Canada would impose its own export tax instead of having duties collected directly by the US. British Columbia and Quebec supported the arrangement. The result was a memorandum of understanding (MOU) signed 30 December 1986. Canada agreed to impose a tax of 15 per cent — amounting to roughly $600 million a year — on Canadian softwood exports to the US. It was the largest self-imposed penalty in the history of world trade.

The dispute was a source of political controversy in Canada. Some viewed the agreement as a necessary way to avoid more stringent trade penalties. But critics were outraged at American trade actions. There was concern over the ability of federal representatives to negotiate in the face of provincial willingness to capitulate. Some argued that the agreement threatened Canadian sovereignty. In late 1987, the federal government reached agreements with BC and Quebec. Under the agreement, higher provincial stumpage charges were to be substituted for the 15 per cent federal export tax on softwood lumber originating from these provinces.

Reignited Trade Battles (1991–96): Lumber III

In 1991, after provincial stumpage rates increased, Canada withdrew from the 1986 MOU. The US Department of Commerce responded in May 1992 by recommending countervailing duties of 6.51 percent on all provinces except the Maritimes. This tariff came into effect in July 1992. Canada challenged US measures by appealing to a Canada-US Free Trade Agreement (CUSFTA) panel. It ultimately sided with Canada. (CUSFTA was the predecessor of NAFTA.)

However, the panel was composed of three Canadians and two Americans. The three Canadians supported the Canadian position in the dispute; the two Americans, the American one. To the US side, this seemed biased and unfair. For example, Judge Malcolm Wilkey, a retired judge of the Court of Appeals for the DC Circuit, wrote that the “Binational Panel Majority opinion may violate more principles of appellate review of agency action than any opinion by a reviewing body which I have ever read.” The US threatened to retaliate with severe import taxes. They also refused to refund duties collected on Canadian lumber products that were supposed to be paid back because of the panel’s determination.

In May 1996, Canada and the US ended five years of legal manoeuvering when they signed the US-Canada Softwood Lumber Agreement. The agreement capped Canadian duty-free exports. Also, any exported lumber that exceeded the agreed-upon volume would be subject to export charges. In turn, the US agreed to return some of the duties they had collected prior to the CUSFTA panel decision.

Renewed Disputes and the 2006 Softwood Lumber Agreement (2001–06): Lumber IV

The 1996 US-Canada Softwood Lumber Agreement expired in 2001. The US again accused Canada of subsidizing its lumber industry. (This inaugurated a period often called “Lumber IV.”) The Americans also argued that Canada’s lumber trade amounted to “dumping” — unfairly selling an exported product at a lower price than it would cost at home or lower than it would cost to produce. As with earlier rounds of the softwood lumber dispute, the US Department of Commerce investigated and concluded that Canada was effectively subsidizing its softwood lumber industry and engaging in dumping. The US imposed countervailing duties of 19.3 per cent and anti-dumping duties that averaged 12.6 per cent in 2001 and 27.2 per cent in 2002. (Anti-dumping duties varied depending on the company and province. The Atlantic provinces were mostly unaffected.)

Over several years, Canada appealed the US duties on Canadian softwood lumber to the World Trade Organization (WTO) and NAFTA. Their findings typically favoured the Canadian argument that the US Department of Commerce’s duties were unfairly high. It was only when Canada agreed to the 2006 Softwood Lumber Agreement (SLA) that the US returned between $4.2 and $4.5 billion of the US$5.3 billion dollars collected through illegal duties.

The 2006 SLA, signed in September 2006, effectively ended this phase of the conflict and replaced litigation with managed trade. In exchange for the US returning most of the money collected through duties, Canada agreed to limit or tax lumber exports depending on market conditions. The agreement, signed by the Conservative Stephen Harper government, was controversial in Canada. Critics pointed to Canada’s strong legal position; to its repeated wins before international bodies like NAFTA and the WTO; and especially to the decision of a final NAFTA panel (made up of both Canadians and Americans) that unanimously concluded that the US duties were excessive and unfair. Ultimately, these critics said the deal traded years of legal wins for a weak agreement that did not return all the money they felt Canada was rightfully owed. They argued that it favoured US industry, constrained Canadian producers and failed to resolve the underlying dispute. Many expressed concern that similar problems would resurface when the seven-year term was over.

The Return of Softwood Lumber Trade Uncertainty (2015–Present): Lumber V

The 2006 SLA remained in force for the agreed-upon seven years. The two countries also agreed to a two-year extension. In 2015, the SLA expired. The US government agreed not to pursue new countervailing or anti-dumping investigations for one year. Then, in November 2016, the US lumber industry asked the US Department of Commerce to once again look into the Canadian industry’s softwood lumber export practices. Duties were ultimately imposed on Canadian products, marking a return to a familiar cycle in the softwood lumber dispute (known as “Lumber V”). In November 2021, the US Department of Commerce imposed combined final duty rates (anti-dumping and countervailing duties) that varied from 11.12 per cent to 29.66 per cent.

Canada challenged the duties through WTO panels and through NAFTA and its successor agreement, the Canada-United States-Mexico Agreement (CUSMA). It came into effect in July 2020. Although Canada has again found some success through these arbiters, no comprehensive settlement has been reached, and the dispute remains unresolved.

(See also Canada-US Economic Relations; Canadian-American Relations; Free Trade; Timber Trade History.)